One South, Inc. v. Hollowell

• Decision Date: 06 September 2007
• Docket Number: No. 2006-CA-01048-SCT.,2006-CA-01048-SCT.
• Citation: 963 So.2d 1156
• Parties: ONE SOUTH, INC. v. George F. HOLLOWELL, Jr., June H. Weathers and Williams S. Weathers.
• Court: Mississippi Supreme Court

963 So.2d 1156

ONE SOUTH, INC. v. George F. HOLLOWELL, Jr., June H. Weathers and Williams S. Weathers.

No. 2006-CA-01048-SCT.

Supreme Court of Mississippi.

September 6, 2007.

Harold H. Mitchell, Jr., Greenville, attorney for appellant.

Jeffrey A. Levingston, Cleveland, attorney for appellees.

Before DIAZ, P.J., CARLSON and RANDOLPH, JJ.

CARLSON, Justice, for the Court.

¶ 1. One South, Inc., instituted an action against the guarantors on a lease agreement for the lease of certain nonresidential real property. After the lessee, Hollowell Mercantile Company, Inc., missed two rental payments and filed for bankruptcy, One South regained possession of the property, but sought to have the lease agreement accelerated, with the guarantors to pay out the remaining portion of the lease agreement plus reasonable attorney fees. Under the assumption that One South had terminated the lease agreement by retaking possession of the property, the guarantors filed for partial summary judgment, asserting that since Hollowell Mercantile's obligations ceased under the lease agreement, the guarantors' obligations likewise ceased. After the trial court granted the guarantors' motion for partial summary judgment and, in essence, denied One South's motion for summary judgment, One South appealed to us. While we affirm the trial court's grant of the guarantors' motion for partial summary judgment, we find error in the trial court's denial, in toto, of One South's motion for summary judgment. Therefore, we affirm in part and reverse in part, remanding this case to the Washington County Circuit Court for an evidentiary hearing on the issue of the amount of reasonable attorney's fees to be awarded to One South.

FACTS AND PROCEEDINGS IN THE TRIAL COURT

¶ 2. On October 15, 2001, Hollowell Mercantile, Inc., entered into a five-year lease for certain nonresidential real property with One South, Inc., the drafter of the lease. Under the terms of the lease, it was to expire on September 15, 2006. As President of Hollowell Mercantile, William S. Weathers signed the lease on behalf of Hollowell Mercantile. On the same day, the Appellees, George F. Hollowell, Jr., June H. Weathers, and William S. Weathers ("guarantors"), as shareholders of Hollowell Mercantile, signed a separate guaranty agreement stating that they "jointly and severally, personally" guaranteed the obligations of Hollowell Mercantile under the lease agreement.

¶ 3. Thereafter, Hollowell Mercantile made monthly rental payments of $4,000 through February 2004. In March 2004, Hollowell Mercantile failed to make its monthly rental payment. On May 1, 2004, Hollowell Mercantile filed for bankruptcy under Chapter 11 in the United States Bankruptcy Court for the Northern District of Mississippi. During the bankruptcy proceedings, One South was awarded $8,000 in administrative expenses for the period of May 1, 2004, through June 30, 2004. Because Hollowell Mercantile failed to assume or reject the lease agreement during the sixty days following the bankruptcy court's Order for Relief, the lease was deemed rejected pursuant to 11 U.S.C. § 365(d)(4).¹ On August 23, 2004, One South filed a Motion to Lift Stay and Abandon Property, and on September 23, 2004, the bankruptcy judge entered an order lifting the automatic stay and allowing One South to regain possession of the property.

¶ 4. On February 1, 2005, One South filed suit against the guarantors in the Circuit Court of Washington County, seeking payment for two and one-half years of rental payments still remaining under the terms of the lease agreement as well as reasonable attorney's fees. On February 8, 2006, One South filed a motion for summary judgment. Thereafter, on March 30, 2006, Hollowell Mercantile filed a motion for partial summary judgment, claiming that One South terminated the lease according to the provisions set out in Section 13.01 of the lease when it took possession of the property. Thus, the guarantors assert if they are liable at all, they are liable to One South only for the rental payments until September of 2004, minus the $8,000 already obtained by One South in the bankruptcy proceedings, for a total of $20,000.

¶ 5. On April 19, 2006, the Washington County Circuit Court entered an order granting the guarantors' motion for partial summary judgment and finding that the lease has terminated on September 23, 2004. As such, the circuit court declared that the guarantors had no further obligations to One South after September 23, 2004. Additionally, the circuit court disallowed the payment of reasonable attorney's fees by the guarantors because there was no express provision in the guaranty agreement requiring the payment of reasonable attorney's fees. Based on the circuit court's order, One South filed a Motion to Alter or Amend, or in the Alternative, For Relief From Judgment,² which the trial court denied on June 3, 2006. Thereafter, on June 12, 2006, One South filed its Notice of Appeal to this Court assigning four assignments of error: (1) Whether the trial court erred in finding the lease had terminated; (2) whether the trial court erred in not finding that Hollowell Mercantile continued to be in default of the lease; (3) whether the trial court erred in failing to hold the guarantors liable for the obligations of Hollowell Mercantile under the lease; and (4) whether the trial court erred in the amount of damages it awarded One South. We have combined and restated the issues for clarity in discussion.

DISCUSSION

¶ 6. One South contends that the trial court improperly granted partial summary judgment in favor of the guarantors. In reviewing a trial court's grant or denial of summary judgment, our well-established standard of review is de novo. Hubbard v. Wansley, 954 So.2d 951, 956 (Miss.2007). That being said, summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Miss. R. Civ. P. 56(c). Additionally, "[t]he evidence must be viewed in the light most favorable to the party against whom the motion has been made." Green v. Allendale Planting Co., 954 So.2d 1032, 1037 (Miss.2007) (quoting Price v. Purdue Pharma Co., 920 So.2d 479, 483 (Miss.2006)). "The moving party has the burden of demonstrating that [no] genuine issue of material fact[s] exists, and the non-moving party must be given the benefit of the doubt concerning the existence of a material fact." Id. (quoting Howard v. City of Biloxi, 943 So.2d 751, 754 (Miss.Ct.App.2006)). Partial summary judgment is also permissible under our rules, utilizing the same criteria for a grant or denial of a summary judgment and the same standard of review on appeal. See Brown v. Credit Center, Inc., 444 So.2d 358, 363 (Miss.1983); Miss. R. Civ. P. 56(d).

I. WHETHER THE TRIAL COURT ERRED IN FINDING THAT THE LEASE HAD TERMINATED.

¶ 7. One South contends that the trial court should not have granted the guarantors' motion for partial summary judgment, but instead should have granted its own motion for summary judgment. One South argues on appeal that the lease agreement between One South and Hollowell Mercantile did not terminate, as the trial court determined, on September 23, 2004, and thus, was in full force and effect until September 15, 2006, when the lease agreement actually expired by its terms. The guarantors argue, contrary to One South's assertions, that the trial court properly granted their motion for partial summary judgment. The guarantors assert that the trial court was correct in declaring the lease terminated when One South regained possession of the property.

¶ 8. To support its assertions, One South cites to Eastover Bank for Savings v. Sowashee Venture (In re Austin Development Co.), 19 F.3d 1077 (5th Cir.1994), for the proposition that a lease "deemed rejected" in bankruptcy court does not equate to a termination. While Austin offers guidance in interpreting 11 U.S.C. § 365(d)(4) of the bankruptcy code (the section applicable to this case), and concludes that "a debtor's inaction in timely deciding to assume or reject a lease of nonresidential real property under § 365(d)(4), which leads to a deemed rejection, does not effect a termination of that lease," the Fifth Circuit went further and stated that, once a lease is deemed rejected, the debtor's bankruptcy estate has no remaining interest in the outcome of the litigation concerning the lease, and that such issues should be decided in state court by interpreting the contract provisions. Austin, 19 F.3d at 1083-84. Thus, we must look to the contract to determine if an actual termination occurred.

¶ 9. Since the determination of whether One South's repossession of the property terminated the lease agreement between One South and Hollowell Mercantile is a matter of contract construction, we lay out the pertinent provision of the lease agreement below:

12.00 Bankruptcy-Insolvency. Tenant agrees that in the event (i) all or substantially all of Tenant's assets are placed in the hands of a receiver or trustee and such receivership or trusteeship continues for a period of sixty (60) days; or (ii) Tenant makes an assignment for the benefit of creditors or is finally adjudicated bankrupt; or (iii) Tenant institutes any proceedings under the Bankruptcy Act as the same now exists or may hereafter be amended, or under any other act relating to the subject of bankruptcy, including but not limited to any proceeding wherein Tenant seeks to be adjudicated bankrupt or to be discharged of its debts or to affect a plan of liquidation, composition, extension, or reorganization; or (iv) any involuntary proceeding is filed against Tenant under any such bankruptcy laws and such proceeding not be removed within ninety (90) days thereafter; then in any of such events, this Lease...